MetroPCS Sacrifices Profits for LTE

MetroPCS Inc. (NYSE: PCS)'s focus on building up its Long Term Evolution (LTE) customer base caused its profit to dip 63 percent in the first quarter, the company reported Thursday morning.

Its cost per user grew by 16 percent as well. But the LTE focus was fruitful, as MetroPCS's customer base on the 4G data network grew to 580,000, or 6 percent of the 9.5 million customers it counted at the end of the quarter.

That's about the same percent Verizon Wireless has on its network, although the regional carrier is operating at a much smaller scale. (See Verizon Earns $3.9B as Data Usage Jumps .)

MetroPCS also upgraded 16 percent of its subscriber base to LTE smartphones, with 40 percent of those upgrades moving up from a feature phone.

But this cost the carrier dearly. MetroPCS CEO Roger Linquist said on its first-quarter earnings call that the company spent more to maintain and retain customers in the quarter than it did on customer acquisition. MetroPCS only added 132,000 subscribers in the quarter, a huge dip from the 725,945 additions it had in last year's first quarter.

As a result, first-quarter revenues grew to $1.3 billion in the first quarter, up 7 percent over last year, but profit dropped 63 percent to $21 million.

Customers are starting to see the value in speed, though, COO Tom Keys reassured investors, and MetroPCS is banking on LTE as a long-term strategy. It now covers 80 percent of its footprint with the faster data service, and it will have lower-cost Android smartphones for the network ready by back-to-school time, he said. Plus, MetroPCS plans to implement voice-over-LTE (VoLTE) to free up its CDMA spectrum that can be refarmed for LTE later this year. (See MetroPCS Balks at Wholesale LTE and MetroPCS Blames 4G Voice Wait on Qualcomm.)

"[A rich communications suite] will differentiate our premium 4G LTE services from competitors' 3G services," Linquist added. The carrier will have two or three VoLTE-capable devices this year once it can verify the quality is as good as its CDMA network.

Luring new customers
To get back on track with customer acquisitions next quarter, MetroPCS also plans to introduce a $25 basic talk-and-text plan with no data, available on three handsets. CFO Braxton Carter maintained the plan is the right thing to do in the second quarter even though it will be a drag on average revenue per user.

The carrier's hope is that new $25 customers will see the appeal of a more sophisticated Android smartphone on the 1x network and then eventually upgrade to LTE, helping out the carrier's main goal of 4G growth. But the $25 option is just a test for MetroPCS. Keys said if it "down-drifts" to a place where it's not comfortable, the company might pull it.

"There's always the opportunity to upgrade to a service that's more suitable to what we'd like to see our customers have," Linquist said.

— Sarah Reedy, Senior Reporter, Light Reading Mobile

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